Midland economy is in healthy ‘state’

Published 12:12 pm, Tuesday, November 3, 2015

Photo: Tim Fischer/Reporter-Telegram

Image 1of/1

Caption

Close

Image 1 of 1

Photo: Tim Fischer/Reporter-Telegram

Midland economy is in healthy ‘state’

1 / 1

Back to Gallery

Economic assessments come in all forms, have different meanings, cover different time spans and consider varying pieces of data and information. For example, cyclical economic growth can occur in generally unhealthy economies (picture the Soviets and their notorious five-year plans that often managed to squeeze out 3 percent to 5 percent economic growth -- before the system collapsed at their feet). Conversely, cyclical economic decline can occur in economies that are generally structurally healthy. That is exactly what is occurring in Midland at this point.

The state of the Midland economy taken in literal and current fashion is one of transition from growth to decline. The Midland Development Corp.’s Midland Economic Index, a tool for tracking growth rates and business/economic cycles in the Midland general economy, has been in a state of decline for virtually all of 2015. The index peaked in January at 237.5, has declined now for eight straight months through September, and is down by 4.2 percent compared to that January peak level. The index in September fell below its year-ago level for the first time in five years, posting a 0.9 percent decline compared to the September 2014 Midland Economic Index.

The decline in the index from January to February 2015 brought to a close a phenomenal five-year period of growth in which, remarkably, the Midland Economic Index increased for 59 straight months. Over that five-year period, the index expanded by more than 71 percent, averaging a whopping 14.5 percent growth per year. General spending in Midland per Midland sales tax data very nearly doubled over the period of time, posting a 93 percent increase even when adjusted for inflation. Real auto spending increased by 175 percent over that period of time. More than 32,000 jobs were added to the Midland economy during that extraordinary run, an expansion of about 48 percent.

The tide has turned, however, and most measures of the Midland general economy are now in decline. The culprit is widely known to just about everyone, and that is a 60 percent decline in the price of crude oil, which has in turn lowered the Permian Basin rig count by 60 percent along with other measures of regional oil and gas activity. The Texas Permian Basin Petroleum Index, which tracks growth rates and cycles in the Texas Permian Basin oil and gas economy, peaked in November of 2014 and has lost about 27 percent of its value since then.

So that is the state of the Midland economy from that perspective. It is also the “state of the economy” that the oil and gas industry makes up a huge share of the Midland general economy. The degree to which that is the case is a bit of a moving target, but in a direct sense it is probably somewhere between 60 and 70 percent. Contrast that to the state of Texas economy as a whole, of which 10 to 12 percent is comprised of the upstream (exploration and production) oil and gas industry, and the Houston economy of which the upstream oil & gas industry makes up about 20 percent.

The Midland economy, therefore, is arguably more connected to a single base industry than perhaps any other metro area economy in the country. Is that a good thing, or a bad thing? Different people have a different answer to that question, but mostly it just is, and that is not likely to change anytime soon.

Even though the sharp decline in crude oil prices and the resulting contraction in the regional oil and gas economy has now taken the Midland general economy into a state of decline as well, it would be difficult to argue that the local economy has not been well-served by the dramatic expansion in regional oil and gas activity. This is not true just of the last five years, but in large part has been the case dating back to 2002 when both oil and natural gas prices began to increase.

The Permian Basin, already a global influence in petroleum production, has really flexed its muscle over that period of time, and in particular over the last five years as horizontal drilling and hydraulic fracturing have done what was long thought to be impossible: shifting regional petroleum production from decline to strong growth. The region stands ready to pick up where it left off when prices improve, and Midland will continue to serve as an activity hub of one of the most important energy-producing regions on the planet. Therefore, even though the Midland economy is presently enduring a cyclical decline, the state of the Midland economy is good, healthy and strong.